John Connolly: the spinner at the centre of the Star sex scandal

The sex scandal engulfing Sydney's recently re-opened Star casino and the NSW Government just keeps getting murkier – and more incestuous.

Barry O'Farrell yesterday stood down his communications chief, Peter Grimshaw, without pay after it was revealed he had forwarded sensitive work emails from the premier to his girlfriend, a former HR manager at the Star.

Grimshaw's girlfriend alleges she was sexually harassed by the casino's former managing director Sid Vaikunta, who was sacked last month for inappropriate behaviour.

At the centre of the imbroglio is John Connolly, the enigmatic public relations guru named by The Power Index last month as Australia's second most powerful spinner. PR legend Noel Turnbull described Connolly to us as "the best high level strategic consultant currently working in Australia".

Connolly has been giving Echo Entertainment, the Star's owners, crisis management advice since the allegations against Vaikunta first surfaced. Last week, Connolly revealed to reporters at The Australian that the casino had sacked Grimshaw's girlfriend because she had allegedly leaked confidential information.

Just to add to the intrigue: Barry O'Farrell's wife, Rosemary, used to work as a secretary at Connolly's Sydney PR firm. Connolly also contributes a motoring column every week to The Weekend Australian and has done corporate affairs work for the paper.

As for Grimshaw, he worked as head of publicity and corporate affairs at the Star (formerly known as Star City) for 16 years. It is understood he was on unfriendly terms with the casino's new bosses when he left in 2010.

Leaked correspondence, published in The Australian last week, shows that Grimshaw and his girlfriend spent months discussing ways to get rid of Vaikunta. In the correspondence Grimshaw refers to the former managing director as "Mr Nasty".

Following the publication of explosive stories last November revealing concerns about prostitution at the casino, Grimshaw's girlfriend wrote in a text: "All they need is a sexual harassment scandal.''

Grimshaw replied: "Exactly. The best thing about these stories is they put in the mind of the papers that it's [the Star] not so perfect after all.''

The Star has denied leaking, or sanctioning any leaking, of the explosive texts and emails between Grimshaw and his girlfriend, even though the exchange appears to be sourced from her work phone and email. The casino has admitted that it searched her emails before sacking her.

Grimshaw's girlfriend, whose name has not been published, alleges she was verbally harassed by Vaikunta. Another employee, who has since returned to work at the casino, alleges the former managing director groped her. Vaikunta denies the allegations.

Also looming over the affair is the spectre of gaming mogul James Packer. The toxic relationship between O'Farrell's office and the Star's bosses helps explain why the premier last week declared such strong support for Packer's controversial plan to build a second Sydney casino at Barangaroo.

Packer doubled his stake in Echo Entertainment to 10% in late February, and wants to use the company's casino licence to win approval for his Barangaroo bid.

For Packer's audacious plan to go ahead, O'Farrell would have to rewrite Barangaroo's planning laws (Packer wants to build the casino on designated parkland).

A source close to O'Farrell told The Power Index today that whoever leaked the correspondence had done Echo Entertainment and the Star a great disservice. Relations with O'Farrell have hit a new low, and the sex scandal continues to dominate the headlines.

"They have declared jihad against a staffer and scored an own goal in the process."

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